U.K. Pushes Govt. IT To Use SMB Suppliers

Coalition government aims to save money and spread its wealth by awarding 25% of its contract funds to small and midsize businesses by 2015.

The U.K. government says its data proves that more and more small and midsize businesses (SMBs), especially in the technology field, are successfully bidding for -- and winning -- lucrative government work. Then how come so few are convinced the market for central government information and communications technology (ICT), so long dominated by the largest systems integrators, really has changed that much since the reform-minded Coalition government came to power in May 2010?

The details first: Wednesday, the government published data that said 10% of its direct spending went to SMBs in the 2011-12 fiscal year. In specific terms, it spent $6.7 billion (£4.4 billion) with SMBs, up from $4.9 billion (£3.2 billion) in 2010-11, representing 6.8%, of total spending that year. (The ratio was even lower in 2009-10, at 6.5% of direct government spending going to SMBs.)

Again, that's direct spend. If you take into account the supply chain -- by which bureaucrats mean involvement by smaller companies in big government contracts (e.g. as confirmed suppliers or partners to bigger firms or as subcontractors for set pieces of work) -- the figure is more like 16%, an increase of 6% through indirect spending. By combining direct and indirect spending, the Ministry of Justice said it spent $7.6 billion (£5 billion), or 34% of its total spending, in 2011-12 with SMBs, while the Department of Transport spent 3% -- $3 billion (£2 billion) -- of its budget with SMBs. In the latter case, only $117 million (£77 million) was direct spend.

Put that together, and the Coalition can claim to be on course to meet one of its stated political aims -- that by the end of the current Parliament in 2015, 25% of government spend will be with SMBs, directly and through the supply chain.

Why? Because, it argues, that would be good for both the national pocketbook and as a way to boost employment. "[SMBs] are a key driver for the country's economic growth," said Cabinet Office minister Chloe Smith. "But in the past it was far too difficult for them to win business with government because of unnecessary and bureaucratic procurement procedures. We are working to change all that and ensuring every department has actions in place to increase [SMB] spend, even though we are spending less overall. We still have a long way to go, but it's extremely encouraging to see how our work has increased the amount of business we're doing with [SMBs] through both direct and indirect contracts," she concluded.

But the distance of just how far it has to go to meet its 25% goal was put in the spotlight this week by the U.K. government's new CTO Liam Maxwell. (Maxwell, named to the CTO post in December 2012, was previously the government's deputy CIO and executive director for IT reform in the Cabinet Office. He was also at one time head of IT at posh boarding school Eton College.)

Maxwell told a conference of SMB suppliers that, "We have created numerous barriers to entry for you to stop you coming and doing government work, and we have spent the last two years unpicking that. But we haven't got all the way, and we want to know what more we can do to get round that."

Proof of that: the fact he and his team are pushing the CloudStore -- an online catalog for cloud-based services and products that can be delivered directly to buyers as part of the Coalition's "G-Cloud" push. Maxwell offered examples of the benefits this transparency can provide IT buyers: "We pitched for one of the hosting solutions we needed for the Ministry of Justice. A big, well-known system integrator bid $6 million (£4 million) to provide the hosting service for a set period of time for that agency. An [SMB] offered $68,000 (£45,000)." In another example, he said a big supplier bid for an IT job with a large welfare program at $79 million (£52 million), while a smaller player proposed $1.4 million (£942,000).

As he notes, "There's a reason why we want to do business with [SMBs]." But as critics have pointed out, the G-Cloud process is not doing spectacularly well -- only accounting for $9 million (£6 million) of central government ICT contracts in its first year, out of a total of $24 billion (£16 billion) of overall spend. So even though 75% of suppliers on the CloudStore are SMBs, and 70% of CloudStore sales have gone to them, if volume remains as stubbornly low as this, how will things really change?

Maxwell and his colleagues in the Cabinet Office point to initiatives like a Mystery Shopper service, where they investigate claims from tech SMBs that they are being shut out of contracts unfairly (often defeated by bidding processes that require so much detail only those with deep pockets can afford to engage with them), as well as other tools, like a guide to doing business with the government, to help SMBs. The government even has an SMB champion inside government, Stephen Allott, the official Crown Representative for SMBs, who presses the big Ministries to stop shutting out the small guy.

But even with all that sincere support, with just two years to go to make that 25% SMB spending target, there seems quite a "long way" to go before more contender ICT firms can get a hearing among Whitehall procurement staff.

There's no doubt Google has made headway into businesses: Just 28 percent discourage or ban use of its productivity ­products, and 69 percent cite Google Apps' good or excellent ­mobility. But progress could still stall: 59 percent of nonusers ­distrust the security of Google's cloud. Its data privacy is an open question, and 37 percent worry about integration.